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Japan big manufacturers' confidence at multi-year low

Monday, October 3, 2016 - 09:48

Business confidence among Japan's largest manufacturers is at its weakest level since Tokyo introduced measures to kick-start the tepid economy more than three years ago, a central bank survey showed Monday.

PHOTO: BLOOMBERG

[TOKYO] Business confidence among Japan's largest manufacturers is at its weakest level since Tokyo introduced measures to kick-start the tepid economy more than three years ago, a central bank survey showed Monday.

The Bank of Japan's closely watched quarterly tankan report comes after GDP barely grew in the second quarter and as a string of poor inflation and spending data on Friday underscored the wobbly recovery.

The latest tankan missed market forecasts for a slight improvement in the mood among major manufacturers.

Sentiment among big manufacturers, a key gauge of Japan Inc's health, has been stuck at its lowest levels since Prime Minister Shinzo Abe kicked off his growth blitz, dubbed Abenomics, in 2013.

The survey of more than 10,000 companies is the most comprehensive indicator of how Japan is faring.

It marks the difference between the percentage of firms that are upbeat and those that see conditions as unfavourable.

The reading for big manufacturers was unchanged at six, while the level for big non-manufacturers fell to 18 from 19 in the survey.

Among medium-size businesses, manufacturers' confidence improved slightly to three from one, while the reading for non-manufacturers rose to 15 from 14.

Small manufacturer confidence was at -3, less pessimistic than a previous reading of -5, while small non-manufacturers showed a confidence level of one, compared to zero in the June survey.

On Friday, official data showed spending among Japanese households tumbled in August and consumer prices fell again - putting the Bank of Japan's two per cent inflation target further out of reach.

The target is a cornerstone of Abe's faltering bid to kickstart growth.

Japanese officials are under intense pressure to deliver, as many economists increasingly write off Tokyo's spend-for-growth policy to fire up the economy.

Last week, the Bank of Japan, which launched a massive bond-purchase programme in 2013 to stimulate growth, revealed yet another exotic weapon in its monetary policy arsenal.

After a hotly anticipated meeting, the bank said it would switch its emphasis from interest rates and concentrate its firepower on 10-year government bonds.

Governor Haruhiko Kuroda said the bank would buy as many or as few of these benchmark instruments as necessary to ensure the yield - the interest rate paid to holders - remained steady at around zero.

The bank said it would cut back on the number of longer dated bonds the bank holds. That should reduce the price of long-term securities, which - in turn - should increase their yield.

It was the latest effort to convince Japanese consumers that the price of goods and services will rise in the future.

Some analysts, however, said the move was an admission of defeat and a warning of the limits of central bank power.

On the government side, Tokyo in July announced a whopping 28-trillion-yen (S$381.91 billion) package aimed at kick-starting growth, after Britain's June vote to quit the European Union sent financial markets into a tailspin and sparked a yen rally - the surge has taken a bite out of profits at Japanese firms that do business overseas.

But Mr Abe's promises to cut through red tape have been slower, and his plan to buoy Japan's once-booming economy have looked increasingly unrealistic.

The economy contracted in the last three months of 2015, before bouncing back in January-March with a 0.5 per cent rise on-quarter and then a 0.2 per cent expansion in April-June.